You work hard throughout your life and once you decide to retire, you get the chance to hang up your boots and enjoy the pleasantness of life without too many responsibilities and 10-hour workdays. But the flipside of retirement is of course, the stoppage of your income. Once you retire, your regular income shall stop and if you only have your savings to rely on, you’re bound to exhaust them quickly. Therefore it is necessary to have a retirement plan in place, so that you have enough funds after you retire to maintain control of your finances.
Let us look at some excellent tips to get your retirement planning on track.
1) Find out how much funds you need
The first thing you need to do is calculate how much money you will need after you retire. Visualize your life after retirement, ask some questions regarding your lifestyle and then perform some calculations about your expenditure. This way, you can form a rough estimate of the corpus that you will need to build for your retirement.
To put things in perspective, if you need Rs. 20,000 per month for your expenses today, assuming that you retire in 30 years, the same expenses would cost you Rs. 1.14 lakh per month, taking into account a 6% inflation rate.
Also factor in big expenses like children’s education, marriage, travel goals etc.
2) Start early
The golden rule of financial planning is to always start early. Once you calculate the corpus you require to lead a satisfying life after retirement, you will realize that accumulating such an amount is no easy task. The key is to start early. Investment uses the power of compounding, and the benefit of compounding is that the earlier you start, the higher will be your returns.
For example, if you’re 25 year old and start putting in Rs. 5000 into a retirement fund, you will accumulate Rs. 1.06 crore when you’re 60 years old (assuming an average 8 percent return).
On the other hand, if you delay your retirement fund and start at age 40 with the same amount, you’ll only be able to put up Rs. 32.73 lakh. A delay of just 15 years can cost you a huge amount.
3) Choose Your Investment Routes Wisely
For your retirement fund, you can choose from a plethora of investment options like debt funds, equity funds, Public Provident Fund(PPF) etc. All these have different risk factors and rate of returns. So do your research and choose your avenues after assessing your risk appetite.
You can also choose to invest in Guaranteed Pension Plans. They provide you with a maturity benefit, life cover and are a good way to get steady income post retirement. These plans also offer tax exemption under Section 80CCC.
4) Review and Re-plan
Even after you’ve set up a good retirement plan, it is important to keep reviewing it every 2-3 years. The world keeps changing and such long durations are bound to bring changes, both in the financial world and in your own life. So keep re-visualizing your plans and see if they remain in line with your goals. This way you can modify your investments to suit your newer needs.
Thus, using the above tips, you can start planning a retirement life full of relaxation, a sizable retirement corpus and most importantly, peace of mind.